By Raymond Nash
Business Planning
Business Continuation Planning Using Life Insurance
The sudden death of a business owner will likely have a devastating impact on their business, their employees, and the other owners of the business. It may also have a significant financial impact on the business owner's family. A properly structured business continuation plan (using a buy-sell agreement funded with life insurance) may help minimize the effect of the loss.
The implementation of a business continuation plan using life insurance is often quite simple. With the assistance of tax, legal and financial advisors, the owners of the business will choose which buy-sell structure is most appropriate for their needs. Their attorney then drafts a buy-sell agreement which contains the parameters for the arrangement. The parties involved in the buy-sell agreement will then purchase life insurance (ideally cash value life insurance) on each business owner’s life through a life insurance professional. When the business owner dies, the beneficiary of the life insurance policy can use the death benefit proceeds to purchase the deceased owner’s interest in the business as outlined in the business continuation plan.
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